Nearly one year ago, Vice Chancellor J. Travis Laster decided to apply Delaware's most onerous standard of review, entire fairness, to the decisions of TripAdvisor, Inc. and Liberty TripAdvisor Holdings, Inc. to reincorporate in Nevada. Palkon v. Maffei, 311 A.3d 255 (Del. Ch. 2024). See Vice Chancellor Laster Rules That It Is "Reasonably Conceivable" That Nevada Provides Greater Protection Against Fiduciary Liability Than Delaware. Nor surprisingly, that ruling was appealed to the Delaware Supreme Court, which today issued its opinion reversing the Vice Chancellor's ruling.
Vice Chancellor Laster applied the entire fairness standard because the proposed reincorporation would involve a controlling stockholder and the receipt of a non-ratable benefit in the form of the enhanced liability protections under Nevada law. The Delaware Supreme Court disagreed with the Vice Chancellor on the role of timing in determining whether an alleged benefit was no-ratable. The Supreme Court believes that temporality is a key factor in determining materiality. The Court concluded that the plaintiffs' allegations did not satisfy the requirement of pleading a material benefit because they failed to allege "anything more than speculation about what potential liabilities Defendants may face in the future". Accordingly, the business judgment rule is the applicable standard of review.
This decision may be beneficial to both Delaware and Nevada in the long run. If the Delaware Supreme Court had decided the other way, businesses might avoid incorporating in Delaware due to a fear that Delaware has become a Hotel California. See TripAdvisor Suit Invites Delaware To Become The Hotel California.
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